Name: Pranay (36),Ambika (34),Paresh (9) Reside in: Navi Mumbai Profession: Private Service Net annual income (R 10.2 lakh) Status & goals Pranay Shah works as an accounts manager in a firm which deals in garment exports. Having come up the hard way,Pranay has been able to keep his family's monthly expenses in check,with the able support of his wife. He has realised that due to his hectic work schedule,he has not been able to focus on his investments and future goals. He is concerned primarily about the rising educational cost and future income after retirement. Needed A plan that will enable Pranay to plan for Pareshs future and help create a corpus to allow him to retire at the age of his choice Net monthly surplus R 44,000 Current Investments: Savings account : R 1.3 lakh Provident fund : R 4 lakh Bank Fixed deposit : R 5 lakh Equity shares : R 5 lakh Equity Mutual Funds : R 1 lakh Findings Emergency fund: Sufficient amount maintained in savings account and fixed deposits to meet emergency needs. LIFE Insurance: Pranay has a cover of R10 lakh from a mix of endowment and money-back policies while Ambika has a money-back policy of R2 lakh sum assured. Health insurance: Family floater policy of R 3 lakh sum assured. Investments: Portfolio is well diversified into equity and debt Liabilities: Nil Recommendations Emergency Fund: Amount in savings account and fixed deposits are sufficient to meet up to three months of expenses. Express TIP: Unexpected expenses like a medical emergency can take place anytime therefore maintaining a minimum of three months of expenses in a bank account with ATM facility is a must. Life Insurance: Considering the family's present and future requirements,Pranay needs an additional cover of R1.2 crore. A suitable term plan for 20 years tenure will cost R18,000 pa. He should stop a few endowment policies and divert that premium for the term plan. Ambika does not need any life insurance cover. Express TIP: In order to achieve your financial goals,adequate insurance is necessary so that your family's dreams are achieved even if the bread earner meets with an unfortunate event. Health Insurance: Existing cover needs to be enhanced to R5 lakh for the family which will cost an additional R4,000 pa over the existing premium. Express tip: Adequate medical cover early in life ensures that you pay standard premiums as well as it prevents using your investments to pay your medical bills. Accident Insurance: A personal accident policy of R25 lakh with R10 lakh as TTD benefit is recommended for Pranay and it should cost R4,000 pa. Express tip: Personal accident policies offer the cheapest form of accidental and disability coverage. This policy can provide a source of income in case of any disability. Planning for Goals Son's education: (2021 to 2026) For this goal,allocate R2.5 lakh from existing equity shares into two balanced mutual funds and start an SIP of R10,000 pm into these funds. Rate of return assumed 10% in balanced mutual funds. Express tip: Investment in equity shares can be highly risky for someone who only invests on tips and without adequate knowledge. Balanced funds can provide better returns with lesser risk than direct shares. Buying a car: (2015) Invest R 1.5 lakh from FD into a Dynamic bond mutual fund and start an sip of R 5000 in the same fund. Rate of return assumed 8% post tax. Express tip: Mid-term goals should be ideally invested in long term debt mutual funds as they are more tax efficient than Fixed deposits Retirement Planning: (2034) The existing equity shares of blue-chip companies and equity mutual funds should be worth approximately R42 lakh at retirement while the EPF should be worth R90 lakh if he stays in service till retirement. The balance FD,if continued in a long term debt fund,should be worth R15.5 lakh. This leaves a shortfall of R1.92 crore for which an sip of R20,000 needs to be invested every month with R12,000 going in equity funds and R4,000 each in gold and debt funds. Rate of return assumed: 8% in EPF and debt funds,12% in equity funds Express TIP: Equity provides inflation beating returns in the long run while gold can be a good hedge and provide diversification along with debt fund.
